There May Be Underlying Issues With The Quality Of Zaggle Prepaid Ocean Services' (NSE:ZAGGLE) Earnings

Zaggle Prepaid Ocean Services Limited (NSE:ZAGGLE) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

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A Closer Look At Zaggle Prepaid Ocean Services' Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to September 2025, Zaggle Prepaid Ocean Services had an accrual ratio of 0.30. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. Even though it reported a profit of ₹1.12b, a look at free cash flow indicates it actually burnt through ₹751m in the last year. We also note that Zaggle Prepaid Ocean Services' free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹751m. Unfortunately for shareholders, the company has also been issuing new shares, diluting their share of future earnings.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Zaggle Prepaid Ocean Services issued 9.5% more new shares over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Zaggle Prepaid Ocean Services' EPS by clicking here.

A Look At The Impact Of Zaggle Prepaid Ocean Services' Dilution On Its Earnings Per Share (EPS)

Zaggle Prepaid Ocean Services has improved its profit over the last three years, with an annualized gain of 246% in that time. In comparison, earnings per share only gained 142% over the same period. And the 57% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 46% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Zaggle Prepaid Ocean Services can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On Zaggle Prepaid Ocean Services' Profit Performance

In conclusion, Zaggle Prepaid Ocean Services has weak cashflow relative to earnings, which indicates lower quality earnings, and the dilution means its earnings per share growth is weaker than its profit growth. For the reasons mentioned above, we think that a perfunctory glance at Zaggle Prepaid Ocean Services' statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Zaggle Prepaid Ocean Services, you'd also look into what risks it is currently facing. For example - Zaggle Prepaid Ocean Services has 1 warning sign we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.